Instant Analysis: Mallinckrodt Considering Sale of Generics Unit

By Eric Volkman Markets Fool.com

What happened?

Continue Reading Below

Mallinckrodt's (NYSE: MNK) legacy business might soon be changing hands. Reuters, citing "people familiar with the matter," reported that the pharmaceutical company is exploring a divestment of its generic-drug operations. Such a deal could total up to $2 billion, according to the article's sources. They did not name any potential buyers for the unit.

To assist it in the process, Reuters said, Mallinckrodt has hired financial-services company Credit Suisse.

In spite of these developments, the article's sources stressed that there is no guarantee such moves will result in a sale.

Mallinckrodt has not yet commented on the story.

IMAGE SOURCE: GETTY IMAGES.

Continue Reading Below

Does it matter?

Hiving off the generics operation would be quite an about-face for Mallinckrodt. After all, generics comprised most of its business when it was spun off from Covidien in 2013.

Times change, though, and since then Mallinckrodt has muscled up on specialty pharmaceuticals. It made a huge move in the segment when, in 2014, it spent $5.6 billion to buy Questcor Pharmaceuticals. That was the deal that brought the successful anti-inflammatory treatment H.P. Acthar into its portfolio.

These aren't the only well-performing branded drugs for the company today. Among other revenue generators, the company has acetaminophen injection Ofrimev and vasodilator Inomax on its product list.

All told, specialty drugs comprise around two-thirds of total revenue. On top of that, the company has several promising treatments in its pipeline. These include Stratagraft, a regenerative skin tissue, and Terlipressin, a drug that treats hepatorenal syndrome, a type of kidney failure.

Generics are Mallinckrodt's past, while branded drugs seem to offer a promising future. If the Reuters story proves true and the legacy business is jettisoned, investors should consider it a positive development.

10 stocks we like better than Mallinckrodt
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Mallinckrodt wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 1, 2017

Eric Volkman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.